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When many people think of getting a mortgage, they think about all the documents and hoops they have to jump through to buy a home. Some even figure out their debt-to-income ratio and how much they can afford before they apply. It is challenging for those with bad credit to figure out where to start the mortgage financing process.
Doing it wrong, you will find yourself paying a high-interest rate and sizeable upfront borrowing costs. That is the essence of this guide. You’ll learn that it contains the essentials of how to get a bad credit mortgage.
But first, let’s clear the thought of getting approved for a mortgage with a bad credit record.
It’s possible to get approved for a mortgage even with poor credit.
It is advisable to use bad mortgages as short-term solutions while you work on improving your credit. The cost to borrow via a bad credit mortgage is high.
Even a tiny increase in your interest rate can cost you tens of thousands of dollars over the life of the loan.
If you plan on getting a mortgage when you have a low credit score, here are a few tips that can help you secure a decent interest rate:
Following these steps may not guarantee you approval for a mortgage with good terms, but they can improve your odds.
If you’re considering applying for a mortgage anytime soon, it may be worth spending some time getting your credit ready before applying. Here are a few actionable tips to help boost your credit score to qualify for a mortgage:
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Knowing where your credit score stands should be your first step in preparing for a mortgage application.
Credit scores are widely available at no cost these days.
When you first start thinking of applying for a mortgage, you check your credit score.
Knowing your credit score early will help you make the right decision.
A low credit score may still get you approved for a mortgage, but the rate will likely be higher than a comparable high credit score mortgage. Also, expect to pay a lender fee and a high down payment with a low credit score.
Get a copy of your credit report and check for any potential problems pulling down your credit score. Also, review your credit score for items you don’t recognize or are inaccurate or fraudulent.
You can contact the credit reporting agencies if you find any inaccuracies on your credit report or a credit product you didn’t sign up for.
Just be aware that disputes with credit agencies take time to resolve the issue, but it can improve your score quickly if it results in a negative item being removed from your credit report.
Paying down or paying off other debts can help improve your credit score, lowering your overall debt exposure. Reducing debt will also boost your debt-to-income ratio, thus improving your chances of qualifying for a higher mortgage.
Start by paying off your credit card debts. Most often, they are unsecured and have a high-negative influence on your credit score.
Your credit utilization rate – the percentage of your total revolving debt outstanding to your credit limits – is essential in calculating your credit score. Many credit experts recommend a credit utilization of 30% or less of the total credit limit. However, this is just a recommendation and not a hard rule.
Paying off or paying down your credit card debts can quickly improve your credit score because credit card balances are reported monthly to the credit reporting agencies.
Your credit record gets checked every time you apply for new debt. The lender runs a hard inquiry on your credit report, which affects your credit score.
The new debts will also increase your debt-to-income ratio, which is a crucial factor for mortgage lenders.
Waiting might be a better option if you have significant negative items like collection, judgments, and active bankruptcy on your credit report. It takes time for a credit score to recover from high-debt utilization and a consistent string of late payments.
Allowing yourself enough time to work on your credit record may save you thousands of interest payments.
It can also allow you enough time to save up more for your down payment, which will likely boost your approval odds.
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It has never been easier to get a bad credit mortgage. With the help of services like approvU, Canadians have found that it is now easier to find bad credit mortgage lenders that will finance their mortgages at competitive rates.
Bad credit mortgage lenders don’t judge much about your past mistakes – they only want to know if you are currently trustworthy and reliable enough to be able to pay back the money.
Talk with a bad credit mortgage broker.
Bad credit specialist mortgage brokers know bad credit specialist mortgage lenders.
Specialist mortgage brokers know which mortgage lender will accept which type of credit situation.
A bad credit mortgage financing specialist will review your situation and provide feedback on the property type and locations that can get you approved easier.
Most bad credit mortgage lenders do not do pre-approvals. Alternative mortgage lenders care more about the property.
A specialist bad credit broker should be able to review your overall file and advise if you should proceed with buying your home with bad credit.
You’ve checked your credit score and haven’t sought any more credit products, checked in with your mortgage specialist for pre-assessment, and found the property.
Now, it’s time to launch the formal mortgage application to your preferred lenders.
A mortgage broker can access more than one lender, so you should be confident if you have been pre-assessed before going out for your house hunt.
Depending on the lender, you will be required to provide your income documents for all the applicants on file, an appraisal report, current bank statements, and down payment documentation.
Your mortgage specialist will help you assemble the required documents to fulfill the lender’s conditions: